An analysis of "shadow inventory" published by Standard & Poor’s Ratings Services showed considerable variations in 20 major markets that could indicate where prices will stabilize or decline.

The analysis — which did not include homes purchased with mortgages backed by Fannie Mae and Freddie Mac — concluded that the time needed to clear shadow inventory ranged from a low of 18.5 months in the metro Phoenix area to a high of 103 months in the greater New York City area.

The report estimated of the months’ supply of shadow inventory in the 20 major markets included in the Standard & Poor’s/Case-Shiller Home Price Indices, defining shadow inventory as homes that are 90-plus days delinquent, in foreclosure, or bank-owned (REO) but not yet on the market. The report also assumed that 70 percent of recently "cured" loans would ultimately redefault.

In all other markets nationwide, the report concluded it will take an average of 34 months to sell those homes at the current pace of liquidation.

Not only did Phoenix have the smallest supply of shadow inventory among the 20 markets tracked by the S&P Case-Schiller Home Price Indices, but two other cities that have been making headlines for years as foreclosure hot spots were also better off than most markets.

Trailing Phoenix only slightly in months’ supply were Las Vegas (21.4 months) and Detroit (23.3 months). Other metro markets where shadow inventory was below the national average were Minneapolis (23.5 months), San Diego (28.8 months), San Francisco (29.2 months), Denver (29.7 months) and Portland (32.5 months).

On the other end of the list, Standard & Poor’s estimated that Miami had a 61.8-month supply of shadow inventory, followed by Boston (58 months), Tampa (52.9 months), Chicago (44.3 months), Charlotte, N.C. (44 months), Seattle (43.8 months), Dallas (43 months), Los Angeles (38.6 months), Cleveland (38.1 months), Atlanta (37.1 months) and Washington, D.C. (34.2 months).

Looking back, Phoenix, Las Vegas and Miami appear to be among eight markets where shadow inventories peaked in late 2007 and early 2008, the report said. The other markets that appear to be past their peaks include Los Angeles, San Diego, San Francisco, Minneapolis and Washington, D.C.

Shadow inventories appear to have peaked around the same time in Portland, Seattle and New York City, but haven’t yet retreated.

Markets where shadow inventories are currently peaking and may still be headed up include Atlanta, Boston, Dallas and Denver, the report said.

The study found a relationship between home prices and the months’ supply of shadow inventory in every region, with months of inventory and a home-price index maintained by the Federal Housing Finance Agency generally trending in similar directions. In other words, prices tend to fall as loan servicers liquidate homes and months of shadow inventory declines.

As shadow inventories decline, inventories of properties for sale increase if distressed properties are put up for sale faster than they can be sold.

"Many mortgage servicers are currently facing a surge in inventories of distressed properties, which they must offload onto a market that’s lacking demand due to funding constraints," the report warned.

"To liquidate these properties successfully, we believe servicers may be forced to reduce their prices. And as these reduced-price homes hit the market, the supply will keep keep rising — which could drive prices further down."

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